A Breakout Week in the NASDAQ? NASDAQ 100 (INDEXNASDAQ:NDX), Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Amazon.com, Inc. (NASDAQ:AMZN)
The NASDAQ 100 (INDEXNASDAQ:NDX) has been the strongest of the four major markets we follow. We follow the DJIA, S&P 500, and Russell 2000, in addition to the NASDAQ 100, and while the DJIA, Russell and S&P were all threatening to break below major downside confirmation levels last week, the NASDAQ 100 was not.
The theme is not much different as this week begins.
Strength in the DJIA, S&P, and Russell 2000 has faded, the DJIA was about 50 points from its early highs when I was writing this, but the NDX was pressing intraday highs and was within striking distance of all time highs too. The NDX has been stronger, and continues to be stronger for now.
Expectations are also running high.
This week last quarter, the week in which Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOG), and Amazon.com, Inc. (NASDAQ:AMZN) all reported earnings, was a breakout week in the NASDAQ 100. Many investors are expecting a repeat.
However, as much as the NASDAQ 100 sometimes seems to beat to the tune of its own drum, which sometimes seems to mimic the untouchable sentiment riddled through San Francisco's technology core, it is not sheltered, in fact it is historically more volatile, and that means on the upside and downside.
Over time the NASDAQ 100 has been proven to increase more aggressively during up-cycles, and decline more aggressively during down cycles. No one on the Streets of San Francisco, to coin an old phrase, seems to think that anything can stop it, but we have heard this tune before.
The technology sector in San Francisco was never more arrogant than at the beginning of 2000. Today is eerily the same as far as sentiment is concerned, but that does nothing to help us with timing or valuation, the latter being longer term in nature.
Using a broad brush stroke, we know that large investors have been in search of yield as the ECB continues to pump stimulus dollars into the system, and we know that monies have flowed into equities in search of yield even though we cannot precisely identify the coefficient, but to me it has been tangible and most investors would agree. They are turning to the dividends of equities and the ECB is even directly buying corporate bonds now because sovereign debt pays so little.
The problem with the NASDAQ 100 is, although its PE multiple is as expensive or more expensive than the S&P 500, its dividend is 43% less than the S&P, at 1.23%. The NASDAQ 100 is therefore not nearly as attractive as the S&P 500 from a yield perspective, which suggests that if the going does get tough weaker hands in the NASDAQ 100 could very well allow history to repeat itself, and we may very well see the NASDAQ fall more aggressively again, after increasing faster recently.